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HELOC vs. The Next-Gen Bridge Loan

Zach Ashman  —  July 26, 2023

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If you’re buying and selling a home, HELOCs and bridge loans are short-term financing options that you may have come across. While they can both facilitate the purchase of a home, they’re riddled with drawback after drawback. 

That’s why we created the Knock Bridge Loan™, or, as we like to call it, the next-generation bridge loan. Our innovative lending solution gives you access to your equity in a way traditional bridge loans and HELOCs can’t.

What is a HELOC?

Let’s start by breaking down the acronym. HELOC stands for Home Equity Line of Credit. In short, it’s a type of loan that lets homeowners borrow against the equity they’ve built up in their home. 

If you don’t know already, when we talk about the “equity” in your home, it refers to the difference between your home’s market value and the outstanding balance on your mortgage. In other words, how much of your home you own.

After an evaluation of your credit, and an appraisal of your home’s value, your lender will determine a specific amount you’re able to borrow. You can use those funds for whatever you need, but some common uses are home renovations, education expenses or debt consolidation. 

Let’s break down the process a little further.

How does it work?

As already mentioned, a HELOC lets homeowners borrow against their equity. With that in mind, borrowers will typically need a significant amount of equity in their home — and a good credit history. Assuming you have both significant equity and a good credit history, here’s what you can expect from a HELOC. 

If you’re approved, you’ll be given a credit limit, which is the maximum amount you can borrow. Based on a percentage of your home’s value and your outstanding mortgage, your Credit Limit is yours to draw from throughout the duration of your Draw Period, which typically lasts several years. 

During the draw period, repayment on the loan begins. Some lenders charge interest-only payments during the draw period. But some lenders require both principal and interest payments. Once the draw period ends, the repayment period begins. 

During the repayment period, the duration of which is a predetermined number of years, you’ll start making interest and principal payments. Similarly, once the repayment period begins, you can no longer borrow, even if your credit limit hasn’t been reached.

Can you buy a new home with a HELOC?

Well, technically yes, but also no. A homebuyer could use a HELOC to access their equity to buy a new home, but it comes with some drawbacks. And those drawbacks could make it impossible to buy the home you want. 

The first drawback? Greater debt-to-income ratio, or DTI. When your new mortgage lender reviews your qualifications, the added HELOC payments will increase your debt-to-income ratio and potentially make you qualify for a much smaller loan — and home!

The main issue there is double payments. When you buy your new home with a HELOC, not only do you have your current monthly mortgage payment, but your adding your HELOC payment and new monthly mortgage payments into the mix. And that’s not a recipe for success. 

In fact, most borrowers couldn’t afford, or even qualify for, two mortgages at the same time. If they could, they likely wouldn’t be considering a HELOC in the first place.

Then there’s the unknown cherry on top. The unknown of when, and for how much, you’re going to sell your old house. And while you’re waiting for answers to those questions, your payments will keep racking up.

Are there risks involved?

As with any loan, there are risks involved with a HELOC. If you haven’t carefully considered your financial situation before jumping into a HELOC, you could be putting yourself in a risky situation. 

If you’re thinking about a HELOC, there are two points you should consider: variable interest rates and using your home as collateral. 

Generally, HELOCs have variable interest rates. In other words, the rate isn’t set. It fluctuates over time, making it difficult to budget for future payments — interest rates can rise, increasing the cost of your loan. 

A HELOC uses your home as collateral. That means, should you fail to make the necessary payments, there is the risk of foreclosure. In order to recover their funds, your lender could have the right to foreclose on your home.

How does that compare to the Knock Bridge Loan™?

Much like a HELOC, the Knock Bridge Loan™ is here to help you tap into your equity. But unlike a HELOC, our next-generation bridge loan doesn’t open the door to off-putting risk.

Our innovative lending solution unlocks your equity, freeing you up to buy your new home before selling your old one. Using a Knock Bridge Loan™ makes the process of selling and buying a home seamless. You can get up to $500,000 to…

  • Make a big down payment and save in the long run
  • Buy down your interest rate and lower your monthly mortgage payments
  • Use up to $35k to make home improvements and sell for top dollar
  • Cover up to six months of mortgage payments on your home until it sells

Enjoy all of these benefits interest-free for up to six months, or until you sell your home!

There is also an added piece of mind that comes with the Knock Bridge Loan™. And that comes in the form of the Knock Purchase Offer, a non-contingent back-up offer designed to provide a safety net so you can sleep easy at night while your agent works to get you top dollar for your home. If your home doesn’t sell in six months, the Knock Purchase Offer kicks in. That way, you’ll know exactly how much you’ll get for your house. 

It’s our proprietary combination of the next-gen bridge loan and the Knock Purchase Offer that enables you to buy your new home before selling your house.

Once your home sells on the open market — or with the Knock Purchase Offer — you simply pay back what you’ve borrowed, and, just like that, your Knock Bridge Loan™ is complete.

Want to buy before you sell with our next-gen bridge loan?

Knock Lending LLC
309 East Paces Ferry Rd NE, Suite 400. Atlanta, GA 30305
(866) 996-1695

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Please be advised that Knock Lending, LLC, Knock Homes, LLC and Knock Property 1, LLC are wholly owned subsidiaries of Knockaway, Inc.(collectively "Knock") and you are NOT required to transact with any of these entities as a condition of working with Knock.

Knock Property 1, LLC issues a Knock Purchase Offer ("KPO") on qualifying properties and charges a contract fee in connection with the KPO.

Knock Homes, LLC is a licensed real estate brokerage in Georgia (GA License #75392).

Knock Lending, LLC (NMLS #1958445) is a licensed lender offering the Knock Bridge Loan for qualifying customers in the following states: AL Consumer Credit License – 23548; AZ Mortgage Banker License - 1008344; CA Financing Law License - 60DBO-119056; CO Mortgage Company Registration, DC Mortgage Dual Authority License - MLB1958445; FL Mortgage Lender Servicer License - MLD1923; GA Mortgage Lender License/Registration -71132; IL Residential Mortgage License - MB.6761572; KY Mortgage Company License - MC852606; MD Mortgage Lender License - 1958445; MI1st Mortgage Broker/Lender License - FL0023450; MI 2nd Mortgage Broker/Lender Registrant - SR0023451; MN Residential Mortgage Originator License – MN-MO-1958445; NH Mortgage Banker License – 27070-MB; NJ Residential Mortgage Lender License; NC Mortgage Lender License – L-19047; OH Residential Mortgage Lending Act Certificate of Registration – RM.804802.000; OR Mortgage Lending License – 1958445; PA Mortgage Lender License – 91448; SC Mortgage Lender/Servicer License – MLS-1958445; TN Mortgage License – 221798; WA Consumer Loan Company License – CL-1958445; WI Mortgage Banker License – 1958445BA.

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